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Decentralised Financial Flows

This document discusses how cryptocurrencies like Bitcoin present both challenges and opportunities for global anti-money laundering efforts. While cryptocurrencies have the potential for money laundering due to their digital and decentralized nature, their underlying blockchain technology also provides opportunities. The Financial Action Task Force pursues a risk-based approach that generally strikes an effective balance between these risks and opportunities. Ongoing monitoring is still needed to evaluate the wider ethical implications of cryptocurrencies for anti-money laundering efforts given rapid technological change.

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MADE MIRA
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51 views2 pages

Decentralised Financial Flows

This document discusses how cryptocurrencies like Bitcoin present both challenges and opportunities for global anti-money laundering efforts. While cryptocurrencies have the potential for money laundering due to their digital and decentralized nature, their underlying blockchain technology also provides opportunities. The Financial Action Task Force pursues a risk-based approach that generally strikes an effective balance between these risks and opportunities. Ongoing monitoring is still needed to evaluate the wider ethical implications of cryptocurrencies for anti-money laundering efforts given rapid technological change.

Uploaded by

MADE MIRA
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Crypto-coins (CCs) like Bitcoin are digitally encrypted tokens traded in peer-to-peer networks

whose money laundering potential has attracted the attention of regulators, firms and the wider
public worldwide. This article assesses the effectiveness of the global anti-money laundering
regime in balancing both the challenges and opportunities presented by these novel ‘altcoins’.
Two main arguments are advanced. First, the implications that crypto-coins presently pose for
global anti-money laundering efforts stem less from the threats of their illicit uses as digital
currencies and more from the opportunities presented by their underlying blockchain
technologies. Second, despite several shortcomings, the risk-based approach pursued by the
Financial Action Task Force (FATF) strikes an effective balance between the existing threats
and opportunities that crypto-coins currently present. Rather than a conclusive evaluation
however this article stresses the need for continual monitoring and investigation of the wider
ethical implications raised by CCs for global efforts to combat money laundering in an era of
rapid technological change.

Why should global anti-money laundering efforts be concerned with CCs if Bin practice few
people actually use, or perceive, Bitcoin as money in a traditional sense^ ([16], p. 3)?.Recent
calls to expand studies of money ([17], p. 19) and heterodox understandings of money [18, 19]
point to at least two reasons why CCs remain relevant to global anti-money laundering efforts.
First, global anti-money laundering governance is concerned with illicit transactions and
financial flows whether or not they meet theoretical standards of money. These global efforts
seek to combat the ‘mainstreaming’ of proceeds from illicit activities into the legitimate
financial system by preventing the linking of financial Bupperworlds^ and Bunderworlds^
[20]. A second reason why CCs remain relevant to global anti-money laundering governance
is due to the novel manners in which altcoins enable the nearly real-time undertaking,
verification and publication of transactions across political boundaries. As the following
subsections explore in turn, the decentralised and quasi-anonymous features of CCs potentially
threaten longstanding global anti-money laundering efforts.

Decentralised financial flows

Money laundering across national borders traditionally implicated large, multinational banks
specialised in cross-border financial transactions. As such, global-level anti-money laundering
(AML) efforts have traditionally Bdeputized^ [21] multinational banks as centralised Bchoke
points^ [22] to report transactions suspected of laundering illicit funds. CC transactions,
however, are undertaken between decentralised networks of users spread worldwide. Rather
than centralised institutions like banks, CCs rely on these decentralised networks of users to
verify the validity of transactions and avoid the problem of double spending. 7 In shifting from
reliance on centralised financial institutions, CCs Bneatly sidestep the plethora of anti-money
laundering regulations developed over the past 25 years^ ([23], p. 3). Without centralised
institutions ‘in charge’ of CCs, no one set of institutions may be relied upon to impose AML
requirements. There exist several ‘nodes’ in the CC ecosystem that can be targeted in global
AML efforts. Before elaborating upon these, however, a second related threat to global AML
governance is considered.

Quasi-anonymous financial flows

Applications of digital technologies have long sought to navigate between transparency and
anonymity ([24], p. 57–59). Attempts to balance these play out in novel manners with CCs. In
theory, CC user addresses cannot be linked to real-world individual identities due to the
complex mathematical scrambling employed in the public-key cryptography underlying CCs.
Nevertheless, records of individual transactions are broadcast on so-called ‘distributed public
ledgers’. With Bitcoin, for example, the record of all transactions undertaken approximately
every ten minutes is bundled together in ‘blocks’. Linked together, these blocks form
blockchains, as ‘distributed public ledgers’ are more commonly known. Contrary to
sensationalistic media reports, CCs like Bitcoin are best characterised as quasi-anonymous
technologies. Their novel attempts to balance of user anonymity and transactional transparency
are paradoxically both attractions, as well as sources of risk for governments, firms and
individuals in an age of Bsurveillance capitalism^

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